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What's Your Stock's Price Target? - Screen of the Week

I know there are a lot of people out there who think the market
may be running out of steam, and they're naturally wondering if
their stocks are as well.

Of course, there are others who are expecting another push to the
upside, and they too are wondering how high they should expect to
see their stocks to go.

But regardless of what you think may or may not happen to the
market, everyone would like to have a better understanding of what
their stock's potential price target is. And that's what we're
going to talk about today.

You can do this by using either technicals or fundamentals.

Today, I'm going to focus in on the fundamentals.

And we're going to use the P/E ratio to calculate it.

The P/E Ratio Can Tell You A Lot

Many people use P/E ratios to determine a company's perceived under
or overvaluation.

But you can also use the P/E ratio to determine a stock's upside
and downside price targets as well.

The two most common P/E ratios used are:

1) P/Es using the Trailing 12 months (or 4 quarters) of earnings

2) P/Es using the F1 (or Current Fiscal Year) Estimates

The calculation for the P/E ratio is simply price divided by
earnings.

For example: if a stock's price is $30 and its earnings are $1.25,
its P/E would be 24.

If that stock's earnings rose to $2.00, the P/E would now be lower
at 15. ($30 price / $2.00 earnings = 15 P/E)

And the most logical conclusion would be to see the stock's price
rise until its most recent multiple (or P/E ratio) of 24 was hit
again.

Why is this so 'logical'? Because if people had just been willing
to pay 24 times earnings, they probably will again if they believe
the company's earnings will continue to improve.

And in an environment where P/Es are increasing, they might be
willing to pay even more.

Most of the time, you'll also find that a stock's P/E ratio using
EPS actuals is higher than its P/E ratio using its forward
estimates.

That's because of the uncertainty regarding the projected earnings
vs. the certainty of actual earnings.

As the company continues to report (and meets its projections), the
forward P/E ratio typically increases, which means the stock price
increases as the earnings projections are coming to fruition.

And as more optimism grows over future earnings growth, you may see
the P/E ratio grow even more, getting even higher than its previous
multiple.

Some great picks and all are trading at least 20% below their
projected price targets.

Get the rest of the stocks on this list and start finding more
stocks trading below their price targets today. It's easy to do.
Click below to sign up for a free trial to the Research Wizard
today. You can do it.

Disclosure: Officers, directors and/or employees of Zacks
Investment Research may own or have sold short securities and/or
hold long and/or short positions in options that are mentioned in
this material. An affiliated investment advisory firm may own or
have sold short securities and/or hold long and/or short positions
in options that are mentioned in this material.

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